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Crowdfunding could be huge in Africa but regulatory laws need to catch up

Reuters/Thomas Mukoya
A Microsoft delegate checks applications on a smartphone during the launch of the Windows 10 operating system in Kenya’s capital Nairobi, July 29, 2015
  • Yomi Kazeem
By Yomi Kazeem

Africa reporter

Published This article is more than 2 years old.

Crowdfunding platforms in Africa raised $32.3 million for various projects in 2015, data from the Afrikstart Crowdfunding in Africa (pdf) report shows. But that figure could be much higher over the coming years if African governments develop regulation on crowdfunding.

Despite its rising popularity, the most common limitation of crowdfunding across most African countries, is a lack of legal and regulatory framework. Nigerian start-ups were recently confronted with this reality when the country’s securities and exchange regulator insisted the country’s laws make no provisions for crowdfunding. The regulator there said the country’s financing laws had yet to catch up with new funding sources.

“The absence of regulation limits the expansion of equity-based or debt-based crowdfunding platforms in Africa,” the report states. The lack of regulation likely deters more investors from pooling money in platforms “in which they have no basic investors’ protection rights and clear exit strategies,” the report says. The upside to fixing crowdfunding regulation in Africa will see access to finance, a pressing problem for businesses and entrepreneurs, democratized.

There is some irony in the idea that regulators could support an innovative platforrm given local regulators in many African countries have been extremely conservative and typically used regulation to smother innovation and innovators.

Despite the limitation an absence of regulation poses, with cost of access to internet dropping in parts of the continent and smartphone penetration deepening, more Africans are taking advantage of crowdfunding platforms to finance projects ranging from start-ups to social causes.

This is happening quicker in South Africa than anywhere else. Of the $32.3 million raised by crowdfunding platforms based in Africa, $30.8 million was raised by platforms in South Africa alone.

South Africa’s dominance in crowdfunding on the continent is not accidental. According to report, the popularity of crowdfunding in South Africa is down to the country’s “sophisticated business market, a robust and reliable regulatory credit system and supervision.”

Generally, social causes constituted nearly a third of the total crowdfunding projects launched across the continent while business and entrepreneurship projects were the second most launched category.

But the high rate of social causes launched was not matched by the funding received—less than 1% of the total money raised. At an average of $1,500, the report explains, the low total amount of funding received by social causes is due to the average funding goal of a crowdfunding project for a social cause being “lower than the target funding goal of a business crowdfunding project or a real estate crowdfunding project.”  While social causes received just over $300,000, projects involving businesses and entrepreneurs were the top funded crowdfunding category last year, receiving $17.8 million.

Crowdfunding platforms outside the continent also raised $94.6 million to fund projects in Africa in 2015. In contrast to crowdfunding projects on the continent, foreign crowdfunding platforms “primarily fund projects geared towards social causes.”

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